Waiving the right to forfeit

Once a landlord with knowledge of a breach of the lease has acted in a way which is consistent only with the continuing existence of the lease, he is considered to have made an irrevocable choice not to terminate the lease. In this situation he will have ‘waived’ his right to forfeit the lease.  

The Court of Appeal had to decide in Mohammed Majeed Faiz (1) Shakeela Faiz (2) and Sassf Ltd (3) v Burnley Borough Council [2021] EWCA Civ 55 whether (1) demand and acceptance of rent, whilst a landlord has knowledge of a breach, amounted to a waiver of the right to forfeit if the rent accrued due before the landlord had knowledge of the breach and (2) a second demand that reduced the amount of insurance previously due was a new demand accruing due after the landlord had acquired knowledge of the breach.

Background

Burnley Borough Council (‘the landlord’) granted a lease which contained a clause that insurance rent was payable within 7 days of demand. The lease of a café at Towneley Hall, a historic country house in Lancashire, became vested in Mr Faiz and his daughter (‘the tenants’) in 2003. However between 20 May 2019 and 18 October 2019 and without the landlord's knowledge the tenants granted a sub-lease of the premises, backdated to commence on 01 August 2017, which amounted to a breach of the lease.

In September 2019, the landlord demanded the insurance rent for the period 1 April 2019 to 25 February 2020 which was payable within 7 days of demand. Subsequent to issuing this demand, the tenants’ solicitors informed the landlord of the sub-lease and they therefore become aware of the breach. 

The landlord then served a Section 146 notice and a few days later, on 4 November 2019, a second invoice for payment of the insurance rent, calculated only up to the date upon which it became aware of the breach, seeking payment on the date it was sent i.e. 4 November 2019. 

The tenants paid the invoice on 11 November 2019 and the landlord proceeded to forfeit the lease by peaceable re-entry on 22 November 2019. 

The tenants argued that by accepting the insurance rent the landlord had waived its right to forfeit the lease.

Decision

In determining the first question, the Court held that the first demand for the insurance rent could not have amounted to a waiver, as the tenants had failed to prove that the breach of the lease occurred before the insurance rent was due. In addition, the landlord did not know of the breach at the time the insurance rent fell due. 

Lewison LJ  stated that “(t)he critical question is whether the date on which the rent fell due preceded or post-dated the breach, rather than the date of the landlord’s knowledge; provided that, when he demanded or accepted the rent, the landlord knew that the breach had been committed.”

The Court stated further at paragraph 37 that:

“Thus the principle is that waiver takes place where the landlord demands or accepts rent which accrued due after the date of a breach known to the landlord. Where the breach consists of an unlawful sub-letting (as in this case), I consider that the landlord must know not only that the sub-letting has taken place, but also that the rent demanded or accepted accrued due after the date of the breach.”

The Court then considered the second question and held that the second invoice did not amount to a fresh demand for rent as payment was due on the day the invoice was sent and considered that the second invoice had superseded the first. As the second invoice did not amount to a fresh demand for rent there was no waiver of forfeiture.

Practical importance

The case demonstrates that the demand and acceptance of rent, when rent has already accrued prior to a relevant breach of lease, such as subletting or alterations, will not amount to a waiver of the right to forfeit the lease, provided the landlord does not have knowledge of a breach.